1. The formula for rate of return on common stock equity (ROE) = (Net Income - Preferred Dividends) / (Average Common Stockholders' Equity).

a. If preferred dividends are cumulative but not declared for the current year, would preferred dividends still be subtracted? Yes or no. Please explain why.

b. If preferred dividends are cumulative and have not been declared for the past 2 years (i.e., the last year and current year), are the cumulative preferred dividends for both years subtracted from net income to compute the current year's ROE or are the cumulative preferred dividends only for the current year subtracted from net income to determine current year's ROE? Please explain why.

c. Are preferred dividends subtracted if they are (1)declared, (2)paid, or (3)declared and paid? Please pick one of the three options and explain why for noncumulative and cumulative preferred stock.